A major compliance change that makes insurers responsible for reporting claims involving Medicare-eligible claimants may result in increased costs and more burdensome administration for insurers and employers using large-deductible programs, observers say.

The change marks a fundamental reversal by the Centers for Medicare & Medicaid Services on compliance with Section 111 of the Medicare, Medicaid and SCHIP Extension Act, they say.

The move also may lead to longer claims durations and higher costs, said Jeffrey Hames, assistant vp and implementation project manager in Memphis, Tenn., for Sedgwick Claims Management Services Inc.

CMS, which is a government agency, announced in a Feb. 24 alert that insurers are the responsible reporting entity for deductible insurance programs.

The announcement is a complete reversal from CMS' past statements that policyholders, not insurers, would be the RRE under deductible policies, sources said.

To comply with the announcement, insurers with deductible policies must notify CMS when workers compensation, liability or no-fault claims with a medical component involve Medicare-eligible beneficiaries.

As a result, insurers and policyholders may have to renegotiate some claims management practices and how claims data will be transferred between them, sources said.

“It's going to take a while for insurance industry (participants) to sort out exactly what their new responsibilities are,” said Roy Franco, director of risk management strategies for supermarket chain Safeway Inc. in Pleasanton, Calif.

Because insurers will be on the hook for a potential penalty of $1,000 per day per claim not properly reported, they could seek greater control over data provided to them by insureds, sources said.

For instance, an insurer may demand that policyholders implement certain data-gathering practices previously not required by the insurer, Mr. Hames said. That would lengthen claims durations and increase case loads, leading to an increase in policyholder costs.

“(Insurers) haven't said anything to us yet, but we foresee that is a possibility,” Mr. Hames said.

“The employer may lose control over the management of their claim because the insurer, being concerned about the penalty, perhaps will want to put in their protocols for managing the Medicare component, which may differ from how the employer thinks it should be managed,” Mr. Franco said.

The impact on insurers will depend on the amount of large-deductible business they write, said Peter Foley, vp of claims administration for the American Insurance Assn. in Washington.

But the impact on insureds may be mitigated because many were prepared to report under the old guidelines and many insureds wanted their insurers to take reporting responsibility, Mr. Foley said.

The insurance industry told CMS more than a year ago that it would be more efficient to designate insurers as RREs rather than policyholders, several sources said.

CMS declined that advice and insurers, third-party administrators and employers spent heavily on establishing data-transfer processes so claims information would flow from insureds to CMS.

“This is a big issue” and amounts to a financial penalty for parties that configured their systems to report under CMS' previous directions, said Ken Paradis, CEO of North Reading, Mass.-based Crowe Paradis Services Corp., a Medicare secondary payer compliance company.

“It's an unfortunate situation that has been created,” because substantial sums were spent configuring systems that must be redirected, said Mr. Franco, who also is co-chairman of the steering committee for the Medicare Advocacy Recovery Coalition, an insurer and employer group formed in 2008 to advocate improvements in the Medicare Secondary Payer program.

Previously, CMS said insureds were RREs when they directly paid Medicare beneficiary claims within a deductible, while insurers paying claims more than the deductible also had to report to CMS.

Insurers that paid entire claims and then reimbursed their insureds for claim amounts falling below the deductible also were RREs.

Now, regardless of who pays the deductible, the insurer is the RRE, except with fronting policies or when insureds resolve claims without informing their insurers, Mr. Franco said.

While CMS clarified who is an RRE under deductible programs, its wording raised new questions about what constitutes informing the insurer, particularly under large-deductibles, sources said.

“I don't think (CMS' new directive) is as clear as the agency would have hoped it was going to be, said Katie A. Fox, compliance and resolution unit manager in Parker, Colo., for MedInsights Inc., a managed care services unit of GAB Robins Group of Cos.

“If anything, it somewhat created more confusion,” said Ms. Fox, who also is a MARC steering committee co-chairman.